Waiver of Subrogation

A waiver of subrogation prevents an insurance carrier from trying to get money back that they paid on a claim caused by a negligent third party. 

What is a waiver of subrogation?

A waiver of subrogation is a document that you sign which prevents your insurance company from pursuing third-party reimbursement for repairs and expenses for a claim. If you sign this waiver, you give up your insurance company’s “right to subrogate,” which is one of the rare legal terms that also sounds like Beastie Boys lyrics.

That means if you have a claim where a third party is at fault and your insurance company has provided you payment for damages by signing the waiver of subrogation you give up the right for your insurance company to recoup money on your behalf from any third party responsible for damages.

Spoiler alert: Every scenario is unique, but it’s usually not in your best interests to sign a waiver of subrogation. 

How does a waiver of subrogation work?

If you’re in a car accident, and someone other than you is at fault, their car insurance company might as you to sign a waiver of subrogation. Why? Well, they might want to settle a claim with you directly instead of working with your insurance company. 

This usually happens when you don’t file your own claim, and instead are a claimant on the negligent third party’s claim. Signing a waiver of subrogation prevents your insurance company from acting on your behalf with the third party insurance carrier.  

Some insurance companies have a waiver of subrogation clause in their car insurance policy or your general liability policy that prevents you from entering into such an agreement. Be sure to call and speak with your insurer before signing a waiver of subrogation. 

You may consider signing a waiver of subrogation if settling with the negligent third party’s insurance company makes sense to you—but make sure your insurance contract allows it. You want to be careful not to breach your insurance contract and leave your insurance company unable to subrogate on your behalf. 

Uh, okay, but what is subrogation? 

Subrogation is a process that is designed to get money from the insurance provider of someone responsible for damage. It’s not unique to the car insurance world, and happens when an insurance provider pays out for damage their insured party is not responsible for. Liability insurance agreements and workers’ compensation insurance are some other examples of how subrogation is used. 

Why would an insurer prevent you from signing a waiver of subrogation? 

When you’re involved in an auto accident, the person who caused the accident’s insurance carrier is usually responsible for paying for the damages. If you didn’t cause the accident and the other person’s insurance company is slow to accept liability, or if you prefer to deal with your own insurance provider, your insurance company may use something called up-front payment for repairs and medical expenses. 

For example, if someone blows through a red light and t-bones your car, you likely wouldn’t be held liable for the damages. If your insurer pays the insurance claim, they will pursue subrogation with the insurance company that covers the person at fault, on your behalf. This process would also help reimburse the cost of your deductible, which you may have paid to start the repairs.

Signing a document waiving your insurance company’s right to subrogate prevents them from collecting back (from the third party’s insurer) any amount that they already paid out to you. 

Subrogation is good for policyholders because it allows insurers to handle claims when needed— instead of making claimants wait to repair a car, or pay for medical bills out-of-pocket, if the negligent third party’s insurance company is slowing down the process. Insurance companies can do this with confidence, knowing that they will have a way to get their money back (or, in Godfather and Sopranos terms, the third-party insurer will “make them whole again”). A policyholder signing a waiver of subrogation would prevent that from happening. 

If your insurer requires you to notify them and get consent before signing a waiver of subrogation, and you don’t, it may void your insurance contract, forcing you to pay for anything above what the negligent third party’s insurance carrier agrees to pay.  Read your policy and talk to your insurance company for guidance.

I’m still confused. Can you give me a hypothetical example?

Sure. 

You’re cruising along down the highway and the jerk behind you is texting his girlfriend. Since his eyes are off the road, he doesn’t notice you’ve slowed down—and he plows right into your car.

Texting Guy is clearly the negligent third-party here. His insurance company gets in touch and offers a certain amount to cover your car’s damage, as well as some small medical bills you incurred. They ask you to sign a waiver of subrogation. 

If you do sign that waiver, it means that your own insurance company TKTKTK. 

Now, let’s say that Texting Guy’s deadbeat insurance company is dragging their feet when it comes to paying what you’re owed. In this case, your (better) insurance company decides to step in and pay you the money you need for repairs and doctor’s bills. But now your insurance company is in the hole for that cash, which it wasn’t actually their responsibility to cover. Subrogation gives them a legal option to go after the third party insurer to recoup these funds. That way, (mostly) everyone is happy: You got the money to cover your bills promptly, and your insurer gets paid back. 

Why would I sign a waiver of subrogation?

You might be asked to sign a waiver if someone else’s insurance company doesn’t want to involve your insurance company in paying out a claim. It’s usually not in your best interest to agree to this! But if you decide to do so, make sure you let your insurer know that the negligent third party’s insurance company wants you to sign a waiver of subrogation before agreeing to anything.